Event
Summary
In December, QAD (NASDAQ: QADI), a provider of enterprise applications
for manufacturers and distributors, announced the availability of optimized
services and industry-standard connectors with QAD/Connects A2A
(application-to-application) - a packaged integration solution that integrates
QAD applications with legacy systems and ERP from multiple vendors like
SAP and Oracle. QAD claims its new modeling and delivery
services, combined with connectors based on industry standards, offer
manufacturers fast, effective and supportable integration across the enterprise,
creating a solid foundation for e-business.
The
enhanced QAD/Connects A2A solution includes a range of industry-standard
application programming interface (API) connectors or gateways for all
major application areas, including accounts receivable, accounts payable,
sales orders, inventory, and general ledger. These connectors support
the Open Applications Group (OAGIS) and XML
messaging standards, which may benefit in flexibility and adaptability
to changing business requirements. QAD will also provide A2A delivery
services and on-going support. QAD/Connects A2A features the Viewlocity
AMTrix integration broker and standard connectors to SAP, Oracle,
and other ERP systems to complete the connection. QAD touts it can also
work with other integration vendors depending on the needs of the customer.
With
the Q/LinQ connectivity engine, QAD/Connects A2A solutions offer
a messaging system for information exchange between QAD and other ERP/legacy
applications, delivering message and error handling, registry functions,
publishing, processing, mapping, and communications.
"With
the release of these industry-standard connectors as part of the QAD/Connects
A2A solution, QAD can help its customers quickly become capable players
in the Internet economy while minimizing the cost of implementation and
on-going support," said QAD Founder and President Pam Lopker. "We can
now help our customers model the best path toward integrating their applications
for e-business, and deliver effective solutions in a matter of weeks -
versus the many months required by wholly customized solutions."
However,
the company's financial performance continues to deteriorate. On November
28, QAD reported declining revenue of $50.0 million for the third quarter
ended October 31, compared with revenue of $56.7 million for the same
period last year. Including the restructuring charges, the net loss for
the third quarter of fiscal year 2001 was $10.2 million, compared to net
loss of $4.5 million a year ago (See Figure 1). Excluding restructuring
charges, operating expenses for the third quarter of fiscal year 2001
were 9% lower than the previous quarter and 11% lower than the third quarter
of fiscal year 2000. The restructuring plan is expected to result in savings
of approximately $20 million on an annualized basis, some of which were
realized in the third quarter.
Figure
1.
"We
are pleased with the progress we have made in reducing our cost structure
in the third quarter and producing operating results in line with our
expectations. Our top line revenue was affected by both the focus on cost
reduction and the strength of the U.S. dollar," said Karl Lopker, QAD
chief executive officer. "QAD eQ - the company's new e-business
application for Sell-Side, Buy-Side, and Replenishment - saw increased
market acceptance in the third quarter with another significant sale to
a large multinational corporation. We are also excited about our newest
release of MFG/PRO, named eB for e-business, which we shipped
in Q3."
The
major event during the quarter was the successful launch of QAD MFG/PRO
eB, an industry-specific e-business software suite that, inter
alia, offers a Net User Interface and a Kanban management application
to help companies move toward a demand-driven e-business manufacturing
model.
Market
Impact
The
declining license revenue and hefty losses have been the main theme through
2000, as the company has been trying hard to keep up with ever increasing
market requirements. Throughout 2000, it has continued to invest in the
new initiatives mentioned in the previous section while it has been feeling
a notable decline in both license and total revenue.
QAD
had no choice but to extend its foothold in its large client base and
to fill the gaps and/or diversify its product offering. We also endorse
the company's plans of enhancing its core ERP product, MFG/PRO
(although in a somewhat tacit manner, given the fact that e-business is
currently all the rage), and continued emphasis on integrating MFG/PRO
components with other back-office systems. The openness and interconnectivity
are one of the most important tenets of competitiveness within the enterprise
applications market in the new Internet economy, and QAD has long grasped
it.
We
believe the company has articulated an e-commerce vision that should have
an appeal to its mid-market users. The company has inevitably shifted
its focus from being a leading ERP vendor dedicated to the industrial
mid-market to fully leveraging the Internet in the applications it provides
to manufacturers, distributors and trading exchanges (for more information,
see QAD
Explores e-Business While Not Abandoning ERP). QAD offers e-business
suite, eQ, which, although in the immaturity stage, can be viable for
focused areas such as direct materials procurement and/or replenishment
and sales order fulfillment.
Nevertheless,
the company faces the challenge of delivering its very ambitious undertakings
as planned and creating greater market recognition and new sales for eQ
both within and outside of its current MFG/PRO customer base. The above-mentioned
product, A2A, which promotes interconnectivity, might help in that regard
though. Further, in addition to its eroding financial situation, QAD's
timid strategy regarding Customer Relationship Management (CRM) offering
and ASP partnerships could in the future be detrimental.
User
Recommendations
QAD's customers should certainly consider the new product offering, but
should avoid selecting it without looking at what the other vendors have
to offer. We encourage users to familiarize themselves with the company's
ambitious new product offerings and their availability, at least to better
leverage their negotiating position with other vendors involved in a particular
selection exercise.
As
for potential users, we generally recommend including QAD in a long list
of an enterprise application selection to mid-market and low-end Tier
1 manufacturing and distribution companies (with $50M-$2B in revenue),
based on its sharp vertical focus and outstanding global service and support.
We recommend including QAD in a short list in any selection within the
following industries: Automotive, Electronics, Food & Beverage, Consumer
Products, and Medical Devices.
Current
and potential users may want to inquire about the company's plans regarding
Internet marketplaces in their respective industries. Which specific market
places does (or will) QAD connect with, what methodology does (or will)
the company prescribe to, are some of the necessary inquiries in that
regard. Furthermore, companies outside of above-mentioned industries may
benefit from evaluating eQ on a stand-alone basis for their e-business
needs and leverage that information against other vendors in the selection.
However,
any organization evaluating QAD products should exercise moderate caution
and consider existing functionality only, until the company regains a
consistently profitable financial performance. Given the fact that the
products (eQ, A2A, MFG/PRO eB) have only been released recently, rigorous
reference checking and focused pre-sales software demonstrations are also
recommended.